- CAD/JPY is on a winning streak despite a notable spike in geopolitical risk following renewed US-Iran hostilities. Why has the yen lost it?
The CAD/JPY currency pair has recovered from an 18-week low of 112.96 on July 4th, achieving a four-day winning streak and surpassing 115.70. Typically, global markets see investors move away from cyclical currencies towards safe-haven assets like the Japanese yen during periods of geopolitical tension.
However, the yen is currently weakening while the loonie gains. This analysis explores why the CAD/JPY pair is deviating from traditional safe-haven behavior and what factors might influence its near-term performance.
Can the Yen Challenge the Canadian Dollar?
Rising oil prices generally benefit the Canadian dollar, reflecting Canada’s position as a significant energy exporter. Recent geopolitical events in the Middle East have pushed crude oil prices higher, providing fundamental support for the Canadian dollar.
Meanwhile, the Japanese yen, often considered a safe-haven currency, faces its own challenges. Persistent interest rate differences and the Bank of Japan’s cautious monetary policy limit the yen’s attractiveness compared to currencies like the Canadian dollar, which offer higher yields.
While the yen has weakened against the US dollar, the CAD/JPY pair is benefiting from Canada’s resource-based economy. A continued increase in oil prices could further favor the Canadian dollar, although any easing of geopolitical tensions might reduce this advantage.
The Yen’s Deeper Problem
Oil aside, the yen’s been fighting a losing battle for months. The Bank of Japan lifted its policy rate to its highest level since 1995, yet the currency still slid to its weakest point since 1986 by late June. Tokyo’s Ministry of Finance stepped in with a record Â¥11.7 trillion between late April and May, but that effect vanished within six weeks.
Lazard Asset Management points out that the usual explanation, the US-Japan interest rate gap, has actually narrowed recently. That would normally support the yen. Instead, rising inflation expectations and worries about Japan’s ballooning public debt, now close to 240% of GDP, seem to be the main problem, keeping the currency under pressure no matter what.
Beyond the oil slick, the broader trajectory of the CAD/JPY is being shaped by monetary policy differentials. On July 15, 2026, the Bank of Canada decided to keep its main interest rate at 2.25%. This makes sense because Canada’s economy grew by 2.5% in the second quarter, and the job market is getting tighter. So, the Bank of Canada doesn’t feel any pressure to lower interest rates right now.
Positioning Strategies for Investors
Considering the Japanese yen is generally weak and oil prices are helping the Canadian dollar in the short term, the overall trend suggests that CAD/JPY could go up. Predictions show it might climb a bit more in the near future, although some models suggest it might eventually settle back down.
However, just betting on this upward trend has a risk of intervention. Japanese officials have shown they’re ready to step in to influence the market, even if their actions haven’t always had a lasting effect.
Instead of treating this as a sure thing, it seems smarter to be cautious with how much you invest, take smaller positions, and keep an eye out for any signs that the Bank of Japan or the Ministry of Finance might step in.
Gains in oil prices from US-Iran tensions have supported the commodity-linked Canadian dollar against the yen.
Bank of Japan intervention provided only temporary support for the yen. Record intervention in April-May 2026 briefly boosted the yen, but its weakness soon resumed.
They should favor the broader uptrend but size positions cautiously. It is advisable to monitor intervention risks and developments in the Middle East rather than assuming continued, unchecked momentum.
